Currency Exchange

Just as a practical matter, how would she substantiate it? I doubt a black marketeer will give her a receipt acceptable to the IRS.

As to using black market rates for conversion, it's not likely that would fly. Conversion to USD must be done on the date the income/expense occurs. If using readily available/documented rates, there is no problem. Using anything else would require some sort of backup documentation to have any chance of prevailing. (I'm not saying you could prevail, but that would be the starting point for trying to argue the point.)

That said, there are special rules when foreign income isn't readily convertible into USD. See IRS Pub. 54, Tax Guide for US Citizens and Resident Aliens Abroad,

for the details. I don't know if this situation qualifies, but it might be of assistance.

Ira Smilovitz, EA Glenwood Tax Services

Argentina is a strange place. The informal exchange rate is known as the Blue Dollar rate and is published on many web sites like these:

When I was in Argentina a few years ago I found that that rate offered by the guys saing "cambio cambio" was pretty close to the one on the web sites.

Does that change the analysis?

I don't know as this is an area outside my expertise. On the other hand, situations like this have occurred in the past and there should be plenty of precedent defining what the IRS/Tax Court have allowed.

Ira Smilovitz, EA

Citing Treas. Reg. 1.988-1(d)(1) and (4, here's what the IRS has to say:

"Official vs. Free Market Exchange Rate: The Treasury Regulations set forth the general rule that the spot rate shall be determined based on the prices at which the currency freely changes hands. However, in cases which the government rate and free market rate differ, the Regulations provide that the rate which ?most clearly reflects income? should be used for the spot rate. Generally, in these cases, the rate that most clearly reflect income is the free market rate. In the current worldwide environment, the countries listed on page 7 have an active free market or black market exchange rates that differ significantly from the government-imposed official rate."

You can see the whole document here:

Thank you for your responses and ideas. The client keeps fastidious records and was, indeed, concerned that she would not have receipts from the "casual" black market. I was certain there would be a work-around in situations where using the street market had become the usual and necessary method of operating.